Is It Good To Buy NFO?

What is NFO

NFOs are new fund options for mutual fund schemes launched by fund houses, such as an asset management company or an insurance provider. Compared to existing mutual fund options, it is priced at a significantly lower rate and provides access to a broad category of investors.

Every investment fund has a unique objective with a risk profile and will be open at the offer price for a specific duration. It is a valuable investment for a planned wealth creation journey.
 

Pros Of Investing In NFO

NFOs provide unique investment opportunities with fresh themes and strategies. They offer early entry into new schemes at accessible price points, making them suitable for diversifying portfolios. The key advantages of NFOs include:
 

• Fresh investment opportunity

  NFOs introduce a new mutual fund scheme, allowing the investors to be a part of the investment since its inception.
  
  

• New investment strategy

  NFOs capitalise on emerging and new trends in the financial investment market, providing unique opportunities to investors. Furthermore, every NFO has a unique strategy aligned to a specific investment objective and risk profile.
  
  

• Initial offer price

  NFOs are available for purchase for a specific period. The offer price is generally ₹10 for the NFO and appears lucrative for any individual planning to start their investment journey.
  
  

• Diversified portfolio

  Every NFO has a unique combination of asset classes, bringing in a diversified mix of investment opportunities. Thus, it can suit a broad range of investors with varying risk profiles, from high risk to low risk.
  
  

• Potential for higher returns

  As the NFOs focus on specific investment objectives and emerging trends, they have the potential to give higher returns in the long term.
  
  

• Professional fund management

  NFOs are introduced and managed by professional fund managers having substantial experience in the financial investment market. It increases the chances of achieving specific investment goals with wealth appreciation over time.

Cons of investing in NFO

Understanding the drawbacks of NFOs is also essential to find out, “Is it a good idea to invest in NFOs?”
 

• Lack of track record

  Since NFOs are newly launched schemes, they do not have historical data or past performance to rely on, as well-established funds do. This can become a challenging situation for investors who want to analyse their earning potential through their track record.
  
  

• Uncertain performance

  The performance of an NFO is not certain since it has not been in the market long enough, and its resilience has not been tested through the different cycles of the market. How the fund will perform when the markets fluctuate is not known. This is a risk factor for many investors.
  
  

• Limited information

  NFOs provide very limited information during their subscription period, making it difficult for investors to thoroughly understand the prospects of the fund and the supporting strategies that will be used in managing the fund.
  
  

• No immediate liquidity

  NFO units cannot be traded on the stock exchange until the fund is officially launched and listed. This lack of immediate liquidity may be a disadvantage for investors who prefer the flexibility of buying and selling units on the stock exchange.
  
  

• Possibility of overpricing

  During the NFO subscription period, investors purchase units at face value, but once the NFO is listed, the market determines the unit price. There is a risk that the market price may be higher than the intrinsic value of the assets, leading to potential overpricing.

Factors To Consider Before Buying NFO

Before buying NFO, consider the following:

• Future financial goals and risk appetite

  Before buying an NFO, investors need to assess their future investment goals and the level of market and financial risk they can accommodate throughout the investment period. It will help in determining the right NFO option for the wealth creation initiatives.
  
  

• Reliability of the fund house

  Although the performance of the NFO or the mutual fund scheme cannot be analysed, researching the reputation of the fund house is a must.
  
  Tracking the record of the previous fund options and their growth will help in gauging the extent of professional management and reliability.
  
  

• NFO Investment Strategy and Risk Profile

  Every NFO will be launched with a specific investment objective. Investors need to check if that aligns with their expectations of the asset allocation, investment objective, and risk profile.
  
  

• Offer Price and Period

  The NFO is available for purchase for a specific period at an offer price of ₹10. Know the open and close dates for the NFO and make timely decisions.
  
  

• Minimum Investment and Withdrawal

  The minimum investment or the number of units that need to be purchased, and the withdrawal rules or the lock-in period can differ for the NFOs. It is essential to know these details to plan a long-term financial commitment.

What is the purpose of launching new NFOs?

Fund houses and asset management companies launch NFOs for several strategic reasons:

• Expanding portfolio offerings: AMCs use NFOs to broaden their product range and fill gaps in their current lineup, entering new themes or asset classes to strengthen market presence.
• Capitalising on market opportunities: Fund houses launch NFOs to quickly identify emerging market opportunities and trends, deploying capital efficiently during appropriate conditions.
• Diversification: NFOs often target new and niche market segments not covered by established funds, providing investors with fresh investment options and exposure.
• Innovative strategies: NFOs enable fund houses to introduce unique investment strategies and themes with strong growth potential, offering investors early access to transformative opportunities.

Conclusion

Investing in an NFO can undoubtedly be a good and wise investment decision for investors seeking long-term wealth creation. As the options are wide-ranging, affordable, flexible, and have unique investment strategies, they can align with individual investor's financial objectives and risk tolerance levels.

Furthermore, it is managed by expert fund managers with professional and industry experience. Therefore, with careful consideration and thorough research, investors can steer the mutual fund investment journey with the NFO for their planned financial goals!